Double Take: JPMorgan Quietly Raising $6 Billion

Just hours after suggesting the credit crisis was nearing an end, and reporting a 50 percent drop in net income tied largely to mortgage and credit woes, JPMorgan Chase & Co. (JPM: 42.46 -0.21%) filed a curious-looking preliminary prospectus with the Securities and Exchange Commission Wednesday night.

Bloomberg News noticed the filing too, and reported that data it had compiled showed that JPMorgan is quietly planning a $6 billion offer of perpetual preferred stock — the biggest such offering in the company’s history. Which means, of course, that it may be time to do a double-take on the company’s earlier suggestion that sunny days are on the horizon; after all, this isn’t exactly the best credit market in which to go hunting for capital, unless there is a real need to do so.

From the report at Bloomberg:

The non-cumulative securities priced to yield 419 basis points more than U.S. Treasuries due in 2018 and pay a fixed rate of 7.9 percent for 10 years. If not called, the debt will begin to float at 347 basis points more than the three-month London interbank offered rate, a borrowing benchmark, currently set at 2.73 percent.

Press representatives at JPMorgan did not immediately respond to a request for comment, and had so far declined to speak with other media agencies as well when this story was published.

JPMorgan Chase & Co. said earlier on Wednesday that 2008 first-quarter net income fell to $2.4 billion, or $.68/share, compared to $4.8 billion, $1.34/share, one year earlier. Driving the drop in income were sizeable mortgage-related losses, including $1.1 billion in loan loss provisions tied to JPMorgan’s home equity portfolio, and another $2.6 billion in write-downs tied mostly to mortgages spanning all credit classes and underwriting programs.

The hush-hush plans to raise capital at the Wall Street bank would certainly seem to contrast against remarks made by JPMorgan CEO Jamie Dimon earlier Wednesday, who had said that the credit mess was “working itself out.” No mention was made on the earnings call about raising $6 billion, and a source that spoke with HW reacted to the news with stunned silence upon hearing of the plan.

“I can’t imagine that a $6 billion capital raise would just have slipped the minds of the execs [at JPMorgan],” said one source, who asked not to be named. “I really don’t know what to say.”

Lehman sold $4 billion of preferred shares earlier this month. Citi has raised capital via preferred shares as well, paying 8.13 percent on stock it sold back in January. There are others, obviously. But none had the apparent audacity to file a preliminary prospectus only hours after an important quarterly earnings call, without so much as mentioning anything about a plan to do so during the call.

“It just takes all of the steam out of things,” said the same source. “I mean, most of us had taken the earnings report as a half-good thing, after all, with Dimon’s remarks. Now what are we supposed to think?”

Disclosure: The author held no positions in JPM or PMI when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.